XXV Edition

1-2 December 2016"

A Contribution to the Empirics Of Consumers’ Anxiety Behavior on and in Credit Card Repayment. Credit Card Management and Financial Literacy among College Students

Barboza Gustavo, Clarion University of Pennsylvania
Smith Chad, Clarion University of Pennsylvania
Boubacar Inoussa, Clarion University of Pennsylvania

This paper studies the determinants of financial anxiety and the role that anxiety plays in consumers’ credit card repayment behavior. Our main interest is to uncover consumer’s perception of self, regarding consumption and borrowing behavior, anxiety and consequent repayment capacity. We pay particular attention to the role that trans-generational financial knowledge, financial literacy, present-bias, impatience and naïve behavior on financial management practices of credit card behavior have on anxiety. Exploratory estimates using a series of ordered Probit models with anxiety levels as dependent variable, first, and repayment frequency on credit card second, provide robust support to the hypothesis that issues relating to poor mental accounting on expenditure, combine with impatience and present-bias through overspending result in higher levels of anxiety. To this end, higher financial literacy does not cause less anxiety, yet it does improve repayment rates on credit cards. In addition, it appears that parental driven financial education while having the desirable effect to improve repayment behavior on credit card debt, also has a negative effect on the anxiety level. A robust result of our study indicates that higher financial anxiety in turn increases the probability to accumulate a month-to-month balance on credit cards. Anxiety seems to be endemic and persistent once it settles in.

Area: Financial Education

Keywords: Credit card behavior, Financial Literacy, Financial Knowledge, Trans-generational Effects, Debt Management

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